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December 18, 2014

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Creditors challenge Lake Las Vegas bankruptcy plan

Lake Las Vegas

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Hopes for a smooth landing in the big Lake Las Vegas bankruptcy case are evaporating, with several parties challenging the development's reorganization plan.

Unable to meet debt obligations, 15 associated companies running the high-end development in Henderson filed for bankruptcy protection July 17, 2008. Lake Las Vegas currently has liabilities of about $728 million.

Under a reorganization plan filed Sept. 4, lenders would convert some debt into equity, certain creditors would be paid generally unspecified amounts and home-building would resume once the economy turns around.

The main lender and creditor is Credit Suisse Group AG, which says it's owed $675 million. That compares to the development companies' assets, mostly undeveloped land, being valued most recently at just $191 million.

Situated on 3,600 acres and featuring a man-made lake, Lake Las Vegas has some 1,600 homes.

Since the filing of the reorganization plan, these are among the creditors posting objections to the plan's disclosure statement:

-- Transcontinental Corp. of Santa Barbara, Calif.; which last week lost a bid to have the bankruptcy case dismissed. The former owner of Lake Las Vegas calls the case a charade since, it claims, Credit Suisse already controls Lake Las Vegas. That makes the bank both the project's main debtor and creditor, Transcontinental claims.

Lake Las Vegas has argued Transcontinental is maneuvering to avoid a lawsuit over its draining the project of $400 million in equity before it gave up control in late 2007.

Transcontinental says it was Credit Suisse, under a much-criticized loan program involving the Yellowstone Club and other resort developments around the West earlier this decade, that provided the financing enabling it to recover its equity.

It was that financing that ultimately proved unaffordable for Lake Las Vegas after the recession set in, Transcontinental maintains.

-- Carmel Land & Cattle Co., which foreclosed on two Lake Las Vegas golf courses and has asserted financial claims against two of the Lake Las Vegas companies over its losses on the golf courses.

-- Three companies owning land in Lake Las Vegas called IOTA Emerald LLC, IOTA Sixteen LLC and IOTA Twenty One LLC.

-- A company called Gamma4C, which has an interest in some Lake Las Vegas land and office buildings leased by Lake Las Vegas.

Carmel Land, in its objection, echoed some of the concerns of Transcontinental -- that Credit Suisse, by controlling the bankruptcy process, is behind the reorganization plan that benefits Credit Suisse at the expense of other creditors.

"From the outset, these bankruptcy cases have been driven by the debtors' principal prepetition lenders Credit Suisse, Cayman Islands Branch and Credit Suisse Securities LLC, and the pre-petition lending group," Carmel Land attorneys wrote in their filing. "This plan was written to benefit the lenders, and provides virtually nothing to creditors other than that which the lenders would do for their own sake as the largest post-confirmation property owners in Lake Las Vegas.

"The debtors, under the control of Credit Suisse, have proposed a plan that releases causes of action against Credit Suisse, in any capacity; the pre-petition lending group; the affiliates, respective members, managers, officers, directors, employees, advisors, professionals or agents of Credit Suisse or the lenders; and the debtors' current management without any disclosure at all as to the value of those causes of action, what analysis was done in connection with those claims, the likelihood of recovery by the debtors on those causes of action and the real necessity of providing these releases to the overall reorganization.

"The plan proposes to bring claims for the benefit of Credit Suisse and the pre-petition lending group without any disclosure at all concerning what those claims are or why those causes of actions should proceed while the claims against the lenders should not," the Carmel Land filing said.

Carmel Land also complained about a plan by Lake Las Vegas to have more affordable housing built in a future phase of the development.

The "proposal will dramatically and permanently alter the Lake Las Vegas Resort and substantially devalue the luxury homes already developed and the land for future luxury homes already purchased by developer/creditors of Lake Las Vegas," attorneys for Carmel Land complained in their filing.

The IOTA companies, in their objection, said the disclosure statement isn't clear about how the reorganization will affect the IOTA interests.

"The disclosure statement provides such a paucity of information detailing the effects of the plan on the IOTA Properties that it is impossible for IOTA to make an informed judgment regarding the plan’s feasibility and its impact on the IOTA properties," IOTA's filing said.

Gamma4C, in its objection, said the reorganization plan's disclosure statement makes vague allegations that claims for mismanagement may be pursued against Gamma4C. "Gamma4C has never heard any complaints from anyone that it has mismanaged anything," the company said in its filing.

Gamma4C also noted that on July 27, the case's Unsecured Creditors Committee filed a lawsuit alleging predatory lending against Credit Suisse concerning Credit Suisse's $560 million loan to Lake Las Vegas in 2004 -- predatory-lending charges similar to those in the widely-followed Yellowstone Club case.

Credit Suisse has denied the allegations of predatory lending.

Gamma 4C noted that the Creditors Committee has now agreed to dismiss the lawsuit and support Credit Suisse and Lake Las Vegas in their claims against Transcontinental.

"The timing of these events and lack of proper explanation and description raises many concerns," Gamma4C said in its objection.

"A proper analysis is not given concerning why the claims against Credit Suisse will be so readily and easily discarded, while the claims against Transcontinental will be pursued with great vigor. Making this lack of analysis more confounding is the fact that, at least facially, Credit Suisse is the obvious deep-pocket target, not Transcontinental," Gamma4C attorneys wrote.

The relationship between Credit Suisse and Lake Las Vegas's management company, Atalon Group, is shaping up to be a key issue in the case, with Transcontinental charging Credit Suisse controls Atalon and Bankruptcy Judge Linda Riegle last week reiterating she is troubled by the relationship.

Lake Las Vegas attorneys have not yet responded to the objections, except to those of Transcontinental. Hearings are set to begin Oct. 15 on the reorganization plan's disclosure statement.

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